Reference no: EM132482371

Suppose your boss comes to you with the following information - at your firm's current level of Output, Q (Q = 210), Marginal Cost, MC = $8.50, Average Variable Cost, AVC = $4.00, and Average Total Cost, ATC = $6.25. The current Market Equilibrium, e - where the Market Supply and Market Demand intersect is at the current Market Price, P = $5.50.

i. Given the information provided above, draw the Market/Industry Graph along with the Firm Graph where each approximate what Market Demand and Supply AND the representative firm's entire Marginal Cost, MC curve along with the Average Variable Cost, AVC curve, Average Total Cost, ATC curve, AND the firms Demand curve, D would look like, making sure that you are showing all the appropriate relationship(s) among each of these curves.

ii. Explain carefully if the firm is currently operating: (1) at its Profit Maximizing position - explain why or why not? AND, (2) if not, should the firm increase or decrease output to arrive at its Profit Maximizing position?

iii. Once the firm is operating AT its Profit Maximizing level of output, Q, explain carefully if the firm operating at a positive economic profit, a negative economic profit, or at a zero economic profit? And, explain WHY this is the case?

iv. At the firm's current level of economic profit (as determined in part iii) what would be the Long-Run BEHAVIOUR in the MARKET as a whole - assuming all other firms are identical to this firm and have "perfect information" that the future will be the same: market entry, market exit, or neither? Explain carefully WHY or why not?

v. If the Market Behaviour is as you explained in part iv above, what would be the profit position of this, and all other firms, at the point when the market re-establishes an equilibrium position AND how will the market's equilibrium price have changed? Increased, decreased, or remained the same? Why?